Surge in India's steel imports is no cause for sinophobia

That there will be quite a bit of hoo-hah when steel imports by India, the world’s fourth largest producer of the metal and one of the few fast-growing markets for it, surge, is expected. The appetite for imports is whetted by depressed world steel prices, low local capacity use, often caused by raw material supply issues, delays in capacity commissioning and rupee gaining strength till recently. In the first five months of the current fiscal to August, India’s steel imports leapt 39 per cent year-on-year (YoY) to 3.34 million tonnes (mt). September imports at 530,000 tonnes grew at nine per cent over the same month in 2011, the lowest in the past 11 months. During this period, our steel exports rose by only four per cent, thanks to the world negotiating weak demand.

For the reasons for high imports stated earlier, a trade official told Reuters that “India will be a forced net importer for at least the next two years.” The country has been in that way for some time. The agency has also quoted JSW Steel Chairman Sajjan Jindal saying India’s imports of the metal will rise 18 per cent to eight mt in 2012-13. Imports of this order will keep India a net importer of steel by some margin. It is to be said that had not land acquisition been such a long gestation issue, a good chunk of new capacity, maybe including that of Tata Steel’s three-mt first phase of the six-mt Orissa project, would have come on stream by now. This no doubt would have made some imports redundant. Imports of certain grades of specialty steel, like grain-oriented flat rolled electrical steel requiring use of technology held closely by some offshore groups, will still be unavoidable. At the same time, once Tata Steel’s three-mt Jamshedpur mill expansion is over, much of our auto grade flat steel imports will be substituted.

Indian steel import spurt is, however, no cause for sinophobia. For, it is mostly Japan and South Korea, which, taking advantage of the low import duty of three per cent because of their free trade agreements with us, are sending steel products here. Imports from China and other countries face the deterrence of 7.5 per cent duty. Some steel, however, continues to come from China. But that should be no cause of concern, at least for now. Not that everyone agrees. Uneasiness about Chinese surplus capacity and the pains it could inflict on another country’s steel industry, haunt many of our steelmakers. Otherwise, why should Jindal be telling the Financial Times that “everybody knows that China has huge capacity and they can immediately crush the industry in another country.” According to him, our neighbour could spell the doom for the Indian steel industry by sending here 10 mt a year. Prashant Ruia of Essar Steel believes surplus Chinese capacity “can... affect global pricing (of steel), and it can certainly affect raw materials pricing”.

No precise figures of surplus Chinese capacity are available, but it could well be around 200 mt. China, the world’s largest producer and user of steel, made 683.265 mt last year and 542.340 mt in the first nine months of 2012, a 1.7 per cent YoY rise. The World Steel Association (WSA) saying in its short range outlook, that China’s steel use will be rising only 2.5 per cent in 2012 to 639.5 mt after recording consumption growth of 6.2 per cent last year to 623.9 mt is symptomatic of the headwinds the broader economy of that country is facing. The combination of Beijing’s attempt to contain inflation and flagging exports, thanks to poor demand mainly from Europe and also the US, saw China’s gross domestic product growth slipping to 7.4 per cent in the third quarter of 2012 marking a decline for seven quarters in a row. China could end the year doing marginally better than 7.5 per cent growth forecast earlier by Beijing. So, it is more than likely that WSA will prove right in its steel use forecast for China.

As this comes true, pressure will be growing on the Chinese steel industry to look at offshore markets, maybe including India in order to harness some idle capacity. Striking a balanced note SAIL Chairman Chandra Sekhar Verma says, “Chinese steel industry is basically domestic needs based. But we have to be watchful when it is beset with huge surplus capacity and becomes a large net exporter.”

It cannot be music to the ears of steel producing countries smarting under demand recession that China’s export of the metal in the first nine months of 2012 rose 10.2 per cent to 41 mt. During this period, Chinese steel imports were down 12 per cent to 10.5 mt in yet another proof of lacklustre local demand. Chinese steel capacity grew at a breakneck speed in the past two decades to support urbanisation and infrastructure development without giving attention to production costs. An official of China Iron and Steel Association says ruefully, “The industry has grown rapidly but with a drawback – severe overcapacity.” Steel making in China being a high-cost operation, exports are seen as the last possible act. That should be of some reassurance for us.